Irish Budget 2009: The Government is estimating an exchequer deficit close to €15 billion next year before Tuesday's budget changes are taken into account, according to the Estimates of Receipts and Expenditure for 2009 published today.

The Department of Finance figures show that the General Government Balance (GGB), as per the Euro Stability and Growth Pact, will be in a deficit of €13.3 billion or 7 per cent of GDP - - more than double the annual deficit permitted by the rules of the European Monetary system.

In Tuesday's Budget, there will be tax increases, spending cuts and welfare payment rises. The allocation of €1.6 billion to the National Pension Reserve Fund for public pensions, si for example likely to be deferred.

The Economic and Social Research Institute said this week that the Government should aim to stabilise the General Government Deficit at 5.5 per cent of GDP in Budget 2009. This deficit level will imply that the Budget will be among the most deflationary budgets of the last quarter century. The ESRI said ideally, it would have been preferable for the Government to avoid adding to the downturn through a fiscal contraction. However, given the poor state of the public finances and the uncertainties surrounding the prospects for the economy, it said that the 5.5 per cent level is prudent.

Today's white paper shows that tax revenue is expected to fall under most headings next year with a total tax take of €41.2 billion by comparison with €42.4 billion this year. Only income tax is expected to rise and that is by a very modest €200 million. Falls are forecast in VAT, corporation tax, capital acquisitions tax, capital gains tax and stamp duties.

The Estimates provide for a big cut in the National Development Plan programme with a decline from €8.5 billion this year to €7.8 billion in 2009. Transport infrastructure is projected to fall by almost €200 million to €2.5 billion. Spending by the Office of Public Works will fall by over €80 million due to the halt in the back-of-an-envelope decentralisation programme.

Fine Gael finance spokesman Richard Bruton said as recently as 2006 there was a budget surplus of €5.2 billion and now the Government was forecasting a deficit of over €13 billion for next year.

"This appalling €18.5 billion turnaround is due to an unsustainable growth bubble which generated revenues that couldn't last. The tragedy is that no value for money reforms were introduced during the period,"said Bruton. "Ireland now faces a very tough budget. The Government must avoid making matters worse by slashing investment or raising taxes, while focusing on long overdue reforms to stamp out waste, to rationalise an overblown administrative structure and to protect frontline services. Vulnerable sections of our community must not become the fall guy for years of Fianna Fáil's complacent management of public money," he added.

Labour Party finance spokeswoman Joan Burton said: "The fall in the fortunes of the Irish economy as reflected in these figures is the most rapid and severe in the history of the state. In 1997 Fianna Fáil inherited a modest budget surplus. When the leave office they are likely to leave behind the biggest deficit every seen."

"While the good times rolled, this Government never ceased congratulating themselves on their economic prowess. Now that they have finally admitted that the country is in a recession, suddenly it is everybody else's fault but their own," she added.

At the annual Kenmare workshop for Irish economists, UCD economist Colm McCarthy and Rossa White, economist at Davy Research, said in a paper that auctioning off intangible assets such as commercial radio and mobile phone licences at their next renewal date should be part of Government strategy to reduce the worsening deficit in the public finances.

In the paper Fiscal Strategy and Economic Recovery, they also argued that National Development Plan (NDP) projects that would not contribute to future growth should be pruned, the public sector pay bill should match the actual reductions achieved in the private sector and the health and education sectors should be reformed, possibly involving partial State withdrawal.

White told the 31st annual economic policy conference that not only would the economy contract sharply in the rest of 2008 and 2009, but that the outlook for 2010 was "clouded", with the response of Irish banks to the financial crisis the key unknown factor.

"If bank lending to creditworthy businesses and households picks up, the recession will not be prolonged indefinitely, but that is far from certain,"he said.

The economy will decline 2 per cent in terms of real GNP this year, according to the economists.

"Next year, with strong negative carry-over effects and no firm reason to expect an upturn, the economy may shrink by a further 3 per cent in volume."

The public finances will continue to worsen, with the decline in tax revenue likely to be larger than in 2008.

Although there is "very little prospect of getting back to an even keel in a hurry", White said it would "matter greatly" whether the GGB deficit next year turned out to be 6 per cent or 8 per cent of GDP.

In order to avoid the State budgetary position adding to the economy's list of problems, it was important to get this deficit down as rapidly as possible, he said.

Finfacts Irish Budget 2009 Page